Want to Bet on Oil Companies? It’s All About the ZIP Code – WSJ

Wrong Side of the Fracks  Bond Graphic     Mar 22 2016For energy investors, it is all about location, location, location.That is the message that emerges in the prices of bonds of oil-and-gas companies operating across North America.Bonds of companies with below-investment-grade credit ratings, or junk bonds, have held up best for producers in west Texas, Canada and parts of Oklahoma, as producers in those regions have proven relatively resilient to low commodity prices, according to data from Citi Research, part of Citigroup Inc.Meanwhile, bond prices of producers operating in east Texas, North Dakota and the Gulf of Mexico have dipped to distressed levels, indicating bond investors—focused on a company’s financial strength—aren’t keen on drilling properties in those areas.The are a few reasons for the divergence, including terrain and the costs of transporting oil and gas to market. But the biggest factor is simply how much fuel is yielded by wells in certain areas, versus other areas for relatively similar costs. In south Texas, the difference between wells with initial flows greater than the equivalent of 800 barrels of oil a day, compared with those that produce less than 600 barrels a day, is the difference between profits and losses, according to energy consultants RBN Energy LLC.

Source: Want to Bet on Oil Companies? It’s All About the ZIP Code – WSJ

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